In the financial year just ended, the Supervisory Board advised the Executive Board on the management of the Company and regularly monitored the management of Hypo Alpe-Adria-Bank International AG. The Supervisory Board discharged in full its duties arising out of legal requirements as well as the Bank’s articles of association.

The Executive Board made regular, timely and comprehensive reports (both written and oral) to the Supervisory Board on all important developments at Hypo Alpe-Adria-Bank International AG and its principal subsidiaries. The Supervisory Board kept itself informed of the Company’s state of business and also its risk situation, and individual topics of current importance were discussed in detail with the Executive Board.

The Executive Board directly involved the Supervisory Board in all decisions of material importance for the Bank and submitted these decisions to the Supervisory Board for approval. The Supervisory Board checked all documents submitted for plausibility and asked for supplementary information on occasions, which was always supplied promptly and satisfactorily by the Executive Board, so that well-founded decisions could be taken.

Supervisory Board meetings

Four scheduled and one extraordinary Supervisory Board meetings took place in 2008.

The business of each meeting was to discuss the current developments in the business of the Bank and its principal subsidiaries, and to receive the reports on credit and market risk, as well as the report from Internal Audit. A main area of focus at the Supervisory Board meetings was on the effects of the financial crisis on the Group as well as on the significantly increased cost with regard to the credit risk.

In the meeting on 6 March 2008, the Executive Board explained the provisional figures for the 2007 financial year and referred to the more detailed discussions held at the 28 February 2008 Audit Committee meeting. Aside from the main meeting, which was held in Zagreb, local management made presentations to the Supervisory Board on the Group’s Croatian banking and leasing activities.

In the meeting on 30 April 2008, the Supervisory Board examined and subsequently approved the financial statements and management report presented by the Executive Board. In accordance with the recommendation made by the Audit Committee, the Supervisory Board also confirmed the proposed distribution of profits. In the meeting preparations were also made for the shareholders’ meeting held on the same day. The consolidated financial statements and management report for the Group were also examined and acknowledged by the Supervisory Board.

In the meeting on 11 September 2008, which took place at the banking subsidiary in Belgrade, the negative effects of the crisis in the financial markets were discussed and an amount of capital that would be required at year end 2008 as a result of the requirement for significantly higher credit risk provisions was signalled.

In the extraordinary meeting held on 12 November 2008 there was extensive discussion about the amount of increase in equity needed to equip the Bank with sufficient capital to compensate for the negative effects of the anticipated negative annual results. Also in this meeting, the necessary actions for increasing capital (and their sequence) were determined, and these were subsequently approved in the extraordinary meeting of shareholders on 11 December 2008.

In the meeting on 11 December 2008 preparations were made for the extraordinary meeting of shareholders, held on the same day, the subject of which was the approval of the capital increase as well as, on the Supervisory Board’s suggestion, the appointment of an additional auditing company, PwC INTER-TREUHAND GmbH, Erdbergerstraße 200, A-1030 Vienna (FN 166237t) to audit the accounts in the 2009 financial year. Additionally, the offer of capital support in connection with the banking package offered to all domestic banks by the Republic of Austria was discussed in detail. The Executive Board reported that it planned to take up this package in the same month of December. The Supervisory Board examined closely the documentation to be submitted by the Bank to the Austrian Federal Ministry of Finance and the provisional contract provisions. The Supervisory Board subsequently voted unanimously, for the period 17–31 December 2008 in the event a Supervisory Board resolution was required in connection with the issuance of participation capital, to delegate its decision-making authority to the Chair: use was made of this arrangement when approval by way of circulation was given on 23 December 2008.

Committees

The Supervisory Board has six committees in total, composed of members of the Supervisory Board.
The Audit Committee met twice in the 2008 financial year. In both instances, those members of the Supervisory Board who are not ordinarily members of this committee also attended these meetings as non-voting members, in the interests of transparency.

In the meeting on 28 February 2008, the Executive Board outlined the provisional figures for the prior financial year 2007 and the auditors, Deloitte Wirtschaftsprüfungs GmbH, gave a detailed report on the status of the audit of the 2007 separate and consolidated financial statements.

In the meeting on 30 April 2008, the Audit Committee held the concluding discussion on the 2007 financial statements and consolidated financial statements and also received a report from the auditors on the main audit findings. The committee members also dealt with the selection of the Bank’s auditors for the 2009 financial year, with Deloitte Wirtschaftsprüfungs GmbH subsequently being proposed to the Supervisory Board. When considering the selection, the committee assured itself of the independence of the auditing company and viewed evidence of fees as required by section 270 (1a) UGB and of adoption of a quality assurance system.

The Credit Committee met twenty-one times in total in the 2008 financial year. Apart from dealing with the issue of new credit, the committee discussed in detail significant individual commitments undertaken by the Bank with the Executive Board.

The Articles and By-Laws Committee met on 20 August 2008 to discuss in detail any modifications required to the articles of association for the Executive Board and to the articles of association for the Supervisory Board in conjunction with the implementation of the “Kreditprozess Neu” new credit process. The formal acceptance of these framework conditions was made in September 2008.

The Executive Board Committee held meetings on 28 February 2008 and on 30 April 2008. In the first meeting of the financial year, the committee dealt with the appointment of Andreas Dörhöfer, previously head of Risk Office Corporates and Financial Institutions at BayernLB, to the Executive Board as the Board member responsible for risk. In the 30 April 2008 meeting, the appointment of Božidar Špan, previously Chairman of the Executive Board for Hypo Alpe-Adria-Bank d.d., Slovenia, was discussed. In both cases, a positive recommendation was made to the Supervisory Board.

The Project Committee, again, did not need to convene in the 2008 financial year. In accordance with the new articles of association for the Supervisory Board which became operative in September 2008, this committee will no longer be part of the permanent committees.

A meeting of the Strategy Committee did not have to be called in the year, as strategic issues were discussed in detail with the Executive Board both in the Supervisory Board meetings as well as on other occasions.

Members

In the shareholders’ meeting of 30 April 2008, Michael Kemmer, already a member of the Supervisory Board and the Chairman of the BayernLB Board of Management, was elected Chairman of the Supervisory Board of Hypo Alpe-Adria-Bank International AG. Werner Schmidt, who had been the Chairman up until that point, resigned from the Board on 1 March 2009. Board members Gert Xander and Kurt Faltlhauser resigned from the Supervisory Board on 18 March 2008 and 30 April 2008 respectively. The Supervisory Board would like to thank the members who have left the Board for the work they have done. Also, in the course of the shareholders’ meeting of 30 April 2008, Ralph Schmidt was appointed a member of the Supervisory Board.

Changes to the membership of the Executive Board of Hypo Alpe-Adria-Bank International AG were as follows: Josef Kircher, responsible for Corporate and Leasing, resigned from the Bank as of 31 May 2008. Božidar Špan was named as his successor, and took up office on 1 June 2008. Thomas Morgl, who had been responsible for Retail, IT/Organisation and Settlement, resigned from the Executive Board of the Bank on 31 December 2008. His responsibilities have been transferred to the remaining members of the Executive Board.

Consolidated and separate financial statements for 2008

The financial statements for Hypo Alpe-Adria-Bank International AG were prepared in accordance with the provisions of the Austrian Banking Act (BWG) as well as – as far as applicable – the provisions of the Austrian Enterprise Code (UGB). The consolidated financial statements were drawn up in accordance with the International Financial Reporting Standards (IFRS).

The consolidated financial statements, the Group management report, the separate financial statements and management report for Hypo Alpe-Adria-Bank International AG, all as of 31 December 2008, were audited by Deloitte Wirtschaftsprüfungs GmbH (operating under the company name of Deloitte Audit Wirtschaftsprüfungs GmbH from 1 April 2009), Renngasse 1/Freyung, 1013 Vienna (FN 36059d) and granted an unqualified audit opinion.

The Audit Committee established that a sufficiently thorough audit of the separate financial statements of the Company and of the consolidated statements for the financial year 2008 could be carried out on the basis of the documentation made available. The auditors took part in both Audit Committee meetings held in 2009 to discuss the 2008 separate and consolidated financial statements and explained in detail their audit findings and answered the committee’s questions.

The Audit Committee therefore recommended that the Supervisory Board approve the separate financial statements in accordance with section 125 (2) of the Austrian Stock Corporation Law (AktG), and to approve the consolidated financial statements; and to accept in both cases the outcome of the audit.

The Supervisory Board has reviewed the submitted separate financial statements and management report of the Executive Board, granted an unqualified audit opinion by the auditors, and assents to the audit results. The separate financial statements have been approved by the Supervisory Board, as set down by section 125 (2) of the Austrian Stock Corporation Law (AktG). The Supervisory Board has also examined the consolidated financial statements and Group management report for 2008 and accepts the recommendation of the Audit Committee.

On behalf of the Supervisory Board

Michael Kemmer
Chairman of the Supervisory Board

Klagenfurt am Wörthersee, 23 April 2009